In the Spotlight - Asahi Group builds on global competitiveness
Asahi has taken another step in its quest to become a globally competitive drinks group
The news this week that Asahi Group has returned to acquire P&N Beverages, and agreed to buy Charlie's Group, has renewed focus on the Japanese firm's overseas growth plan. Michelle Russell examines the market reaction.
Asahi said on Monday (4 July) that it has entered into a fresh agreement to purchase P&N Beverages, for JPY16.3bn (US$202m). The deal has been revised to satisfy Australia's competition watchdog, which refused the original deal earlier this year.
Separately, the Japanese brewer and soft drinks maker has signed a deal to acquire New Zealand's Charlie's Group. The company has also made an approach for Malaysian PepsiCo bottler Permanis, although this was rejected by Permanis owner CI Holdings.
The deals, while a positive investment for Asahi, appear to be yet another example of a Japanese assault on the Australian food and beverage market, as companies attempt to chase growth outside a stagnant Japanese economy.
For The Australian's John Durie, the transactions are also yet another example of overpriced acquisitions in Australia. He cited other examples as Coca-Cola Amatil's purchase of SPC Ardmona in 2004 and the Southcorp-Rosemount wine merger, which was followed by what he describes as "the Foster's Southcorp disaster".
The bulk of food and beverage acquisitions in Australia over the past decade, he says, have resulted in multi-billion-dollar writedowns and shareholder tears.
Nonetheless, Asahi has set aside an overseas M&A warchest valued at US$4.9bn, and has made no secret of the fact that, by 2015, it wants to become one of the world's top ten food and beverage companies in terms of sales. Australia and New Zealand are part of the masterplan.
With the global financial crisis abating and consumer spending increasing, the fruit and vegetable juice sector in Australia is predicted to increase in volume at a CAGR of 2% over the period from 2010 to 2015, according to Euromonitor figures.
The same is expected for the New Zealand market, with a projected increase of 2% over the same period, in particular from a rise in demand for 100% juices.
It's not stellar growth, but it is growth. Unlike in CSDs, which face a tougher ride over the same period. Perhaps it was not too hard for Asahi to agree to spin off P&N's CSD and cordial businesses to Tru Blu Beverages in order to satisfy Australian regulators.
Despite being without a CSD business to compete with in Australia, the P&N purchase will fill a gap in Asahi's portfolio. Charlie's, in particular, operates at the higher end of the market.
For Asahi, these are not blockbuster purchases. The two deals have cost the Japanese drinks group JPY25bn (US$300m), compared to the US$762m price tag commanded by Schweppes Australia.
However, the strategic purchases build Asahi's competitive position and give it more options in the wider Asia-Pacific region. Charlie's and P&N drinks could be sold further afield, the group suggested this week.
They will also help Asahi to chase its Japanese rival, Kirin, which is also aggressively expanding overseas. That said, Kirin's Lion Nathan National Foods has around a 39% share of Australia's fruit and vegetable juice market by volume, while P&N is back in single-digits.
Asahi still has a long way to go if it is to achieve its aim of increasing its global net sales to JPY2.5tn by 2015. Sales were around JPY1.5tn in 2010. P&N and Charlie's form part of the plan, but Asahi will need to integrate them quickly to help it make the progress that it needs to.
Asahi's share price dropped 0.37% to 1,632.00 yen at 14:48 BST today.
In the second part of just-drinks' review of 2011, Michelle Russell looks at how the soft drinks category has fared in the last 12 months....
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